Musings and meanderings on the wonderful world of wireless from Matt Hatton, Director at Machina Research (www.machinaresearch.com) the world's leading advisors on M2M, IoT and mobile broadband strategy.

Thursday, 28 July 2011

In the spirit of recycling, here's a blogpost that I did for Tekelec the other day. Check here to see their excellent blog.

Mobile telephony is probably the world’s most successful technology: there are in excess of 5 billion mobile connections worldwide, representing an unprecedented level of technology penetration. To date, MNOs worldwide have built successful businesses based on selling voice, SMS and data connectivity to individual handset users. Recently, business dynamics have changed slightly with the introduction of mobile broadband and mobile content data services. On the whole MNOs have coped reasonably well with the arrival of these services although it’s not all been plain sailing as illustrated by continuing fears about exponential data traffic growth and concerns about being relegated to a bit-pipe role. One thing that has helped MNOs is that the underlying business logic is broadly the same: sell a device to a person which they use to access services for which they pay. MNOs may have needed to do some work on the network and create a few product management teams for the new services but it hasn’t required a fundamental shift in how they do business. It is a moot point whether they will cope as successfully with the arrival of machine-to-machine (M2M).

As we set out in the table below, in almost every conceivable way, M2M is different from the services MNOs provide today. The most obvious change, from the perspective of industry-watchers is that expectations for traffic, ARPU and revenue are completely different. This has some implications for how MNOs manage the cost of serving those customers. They must keep it as low as possible if they are to be able to cope with ARPU of less than EUR0.5/month. Also, a new consideration within the M2M market is that data volumes per connection are typically sufficiently low that installation costs are often a more significant financial consideration than on-going data transmission costs. MNOs must adapt their tariffing to reflect this dynamic.

Other immediate differences stem from the fact that M2M communication is typically a component of a wider offering, rather than a service in itself. As a result there is often no active end-user. This has implications for swapping providers, complaint handling and device management. M2M is an enabler, and the more transparent the M2M component of an overall service is, the better. In many cases the end user may not even be aware that the device is connected at all.

Furthermore, M2M connectivity is often mission-critical. In many cases customers are entrusting a key part of their business to telcos. Examples include smart metering, insurance tracking devices for cars, a range of fleet management telemetry services and, of course, mobile connected medical devices. As a result customers will have very different expectations over quality-of-service and service level agreements compared to voice and data services where best effort was often enough. Conversely, latency is often not an issue with M2M connections: devices are often connected via M2M with a view to maintaining a certain level of timeliness of information, but without a requirement for real-time information. For instance, smart meters may take meter readings at quarter-hourly intervals, but there may be no urgency in when they are delivered to the utility.

MNOs must also revise their channels and sales strategies. The sale of M2M connectivity by MNOs is often B2B2C: an MNO’s M2M connectivity solution must be integrated into a product which is then provided to a consumer. As a result MNOs must build completely new channel arrangements including identifying sectors they should address via direct and indirect channels. They must also secure sales in an aggressively competitive B2B environment while at the same time delivering a solution that is sufficiently polished and intuitive for a consumer market.

Monday, 25 July 2011

Etisalat and Telefonica have announced a partnership for "broad-based cooperation". This partnership will cover collaboration in a number of strategic areas including "technological standardization, new global technology initiatives, R&D, and new emerging products and services". With regard to the latter they specifically identify M2M, financial services and cloud services. Clearly for me the area of particular interest is how they might collaborate with regard to M2M.

This comes on the back of an announcement in July that French MNO Bouygues would be joining the newly established Telefonica Partners Program. This appears to be a similar set-up to Vodafone's partner program (which includes the likes of Mobilkom Austria) to extend the reach of their international services into out-of-footprint markets. I was speaking with Vodafone last week about exactly this issue. There are evident benefits of a tight integration of partner operators to ensure quality of service, trouble-shooting, SLAs etc for the provision of M2M services. The old arms-length relationships as we've seen with roaming just aren't good enough for M2M. Obviously for some sectors it's less important than for others, e.g. smart metering tends to be country-specific, but automotive or transport & logistics demand cross-border deals.

This requirement for deeper integration is further evinced by the agreement between Orange, DTAG and TeliaSonera that I discussed a few weeks ago on this blog.

The logical conclusion is that MNOs will form into several blocs with a tighter integration between operators within those groupings. Thus far three are evident in the form of Vodafone (with Verizon and partners), Orange/DTAG/TS and the emerging grouping of Telefonica, Etisalat + partners. In the case of the latter it's perhaps likely that KPN will join grouping as they've long-term strategic cooperation deals with Telefonica, particularly in the business sector.

What'll be interesting to watch is whether the formation of these groupings is influenced by the use of shared technology platforms. One obvious examples is that of Jasper Wireless whose platform is used by AT&T, KPN, Telefonica/O2, America Movil, Rogers Wireless, Vimpelcom, SingTel and Telstra. Perhaps this indicates the likely trajectory for the Telefonica partnership programme, to include these other global operators. There are benefits to clients of having a single platform across multiple network operators. The other obvious example is the Ericsson Device Connection Platform. Currently it has only one operator, in the form of Telenor, running on it but with potential for many more.

New report from Machina Research predicts 4.2 billion connected consumer electronics devices by 2020, generating a staggering EUR400 billion revenueIncreased functionality and energy-cost efficiency will drive the adoption of M2M in consumer electronics markets, and yes, there will also be some connected fridges

[London, UK 21st July 2011] By 2020 there will be in excess of 4.2 billion M2M connected Consumer Electronic devices in use worldwide, the majority of which will be connected Audio Visual Sources (1.7 billion) and Displays (1.1 billion), primarily driven by consumer demand for web-TV and internet audio-sources. The White Goods market will begin to adopt M2M connectivity towards the end of the decade, as smart metering and pro-active energy management become more prevalent. By 2020 the market for M2M connected consumer electronics will be worth EUR400 billion, with Europe and Emerging Asia Pacific being the largest regional markets. However, with the vast majority of devices likely to be connected by means of short-range technologies, and with some applications being very data-hungry, connected consumer electronics devices are more likely to be a headache for fixed network operators than a revenue opportunity for mobile network operators.

These findings are based on the report Machine-to-Machine (M2M) Communication in Consumer Electronics 2010-20, published today. The report is the third in Machina Research’s series of Connected Intelligence Reports and examines the opportunities for MNOs, fixed line operators and device manufacturers in addressing the rapidly growing market for embedded connectivity in consumer electronics, specifically Audio Visual Sources, Audio Visual Displays, Personal Multimedia, Household Information Devices, White Goods, Network Equipment, Tracking Applications, and Other devices.

Commenting on the findings the report’s author Jim Morrish said “The role that mobile operators, and mobile connectivity standards, might potentially play in the Consumer Electronics market is severely limited by the cost of WWAN embedded modules. Chipsets for Wi-Fi and other short range communications technologies generally contribute under USD 2.50 to Bill of Materials costs, and often less than USD 1.00. By comparison, 3G embedded modules cost of the order of USD30-60, with 4G costing more still, and effectively price the technology out of the highly competitive Consumer Electronics market. If those prices don’t fall, then the mobile industry might just have to sit out the opportunity for M2M connected consumer electronics and stick to already established mobile broadband devices.”

The key findings of the report are as follows:

The installed base of M2M connected Consumer Electronics devices will exceed 4.2 billion by 2020. By 2020, North America will be the third largest regional market in terms of device count, representing 21% of the market. Europe will be the largest market, representing 29% of connected Consumer Electronics devices, and Developing Asia Pacific markets will represent 27% of the total device count.

The White Goods market will begin to adopt M2M connectivity in the out years of the forecast, as smart metering and pro-active energy management become more prevalent. At the start of the forecast, however, the count of connected devices is dominated by Audio Visual Sources (mostly Computer Gaming Consoles) and Personal Multimedia (mostly Mobile Gaming Consoles).

Total traffic generated by M2M applications in Consumer Electronics (and carried over wide area networks) will exceed 700 Exabytes annually by 2020. The vast majority of this traffic (99%) will be generated by web-TV applications, with internet radio generating the buk of the remaining traffic. However, Consumer Electronics applications will generate only approximately 1.6 Petabytes of mobile network traffic by 2020. The majority of this traffic will be generated by a few niche applications, including household Internet Information Devices, digital Photo Frames digital Cameras and Mobile Games Consoles. Tracking Applications (for children and pets) will generate only approaching 0.5 Petabytes of wide area wireless traffic by 2020

The total market for M2M connected Consumer Electronics will grow to approaching EUR 400 billion in 2020.

To take advantage of the opportunities in M2M connected consumer electronics, Mobile Network Operators should focus mainly on niche applications such as devices for tracking children and pets, and certain household information devices. As Morrish comments: “The main driver behind the adoption of M2M connected Consumer Electronics devices is the potential for connected devices to offer a better user experience than non-connected equivalents. The second most significant driver behind the adoption of M2M connected Consumer Electronics is the potential for such devices to be more energy-cost efficient by timing periods of heavier power consumption to coincide with periods when electricity is cheaper. But there is no sweet-spot. There is no device for which M2M connectivity can both significantly improve user experience and substantially reduce operating costs.”

Concluding, Morrish commented: “And, yes, many fridges and freezers will one day be connected. But not to tell you what you had for breakfast that morning, or to send you an email that you are running low on milk. The ‘killer apps’ for connected fridge-freezers are ice making and defrost cycles. Both of these functions consume significant amounts of power, and can be easily shifted to times of day when power is cheaper. Connected fridges and freezers won’t be a big market opportunity any time soon, but they will be one day. And, anyway, a better way to monitor your stock levels of various household essentials would be to place RFID-, or barcode-, scanners near household bins. If you really wanted to do that, that is.”

About the report Machine-to-machine (M2M) Communication in Consumer Electronics 2010-20 provides invaluable qualitative and quantitative analysis of the emerging opportunity for machine-to-machine communications in consumer electronics.

The report reviews the major drivers and barriers for growth of M2M in consumer electronics and analyses the key market dynamics, including how MNOs, fixed operators, service providers and vendors might go about identifying and realising addressable opportunities.

The forecast excel data sheet includes very granular 10 year market forecasts for 54 countries and 6 regions. The forecast covers numbers of connections, traffic and revenue for each of eight applications (Audio Visual Sources, Audio Visual Displays, Personal Multimedia, Household Information Devices, White Goods, Network Equipment, Tracking Applications, and Other devices), based on analysis of twenty-nine underlying device types and with splits by technology (2G, 3G, 4G, short range, MAN, fixed WAN and satellite) and a break-out of mobile traffic revenue. Each application is examined individually with forecast analysis in the accompanying report.

To access a copy of the executive summary, table of contents and a blank sample data sheet or for details on how to purchase the report please contact our sales team.

These events are really focused. A half day looking at one specific area. I was at the event on mobile traffic offload last week and that was excellent and we're expecting this will be a great morning.

Monday, 18 July 2011

Last week I was interviewed on the Peggy Smedley Show (if you don't know it, it's an M2M-focused web radio show) talking about the M2M forecasts and research that we've been doing at Machina Research. If any of you would like to hear it, here's the details. There's a bit of a technical hitch initially while they try to connect me to Peggy but stick with it. Also, towards the end Peggy gets a little hung up on eCall, but we'll forgive that.

Friday, 15 July 2011

I was at a Breakfast with Total Telecom event on Wednesday morning looking at traffic offloading. Very interesting it was to. However, I'm worried that we're overstating the need for offloading and we're also overestimating the potential of femto etc to deal with those non-existent needs.

We seem, as an industry (and particularly us analysts), to obsess about the total amount of wireless traffic being generated and what proportion will be offloaded on business/domestic femto or WiFi (by which I mean the backhaul is paid for by the end user). There are two fundamental problems here...

The first problem is that the total amount of traffic is not an issue. Networks are not provisioned based on the total, they're provisioned based on the peak. In the case of mobile broadband, this tends to be 10-11pm ish and seems to mostly revolve around streaming video content of a more...ahem...adult nature. Furthermore the usage also tends to be highly focused on a very few cells (the busiest 10% of cells carry 50% of traffic). It also tends to be focused on a small number of users (10% of subscribers generate 50% of traffic is about average). So actually, the issue becomes less "how do we deal with all this traffic?" it's "how do I deal with this usage spike at this time by these small number of users in these few cells?". That seems much more manageable.

The second problem, which follows on from the first, is that we assume that all this WWAN traffic is just waiting to be offloaded. Here's a shocker for people...90%+ of data traffic is already offloaded. Domestic broadband usage, which accounts for the vast majority, is predominantly WiFi. People already use WiFi/DSL to connect their laptops. We generally choose to exclude them from the analysis if they don't also have WWAN access. This is an error. What MNOs are hoping with a femto strategy is that those subscribers who have chosen to connect at home with WWAN are going to be easy to shift onto WLAN. OK, so in some cases it may be that they've connected via WWAN when WiFi/Femto was available, but a simple prioritisation algorithm on the connection manager like Vodafone's Always Best Connected can sort that out. For the most part, however, we have to assume that WWAN is a definite choice. If it were a legacy product then I might be willing to accept that there was an inertia effect and users needed nudging onto femtos. It's not though. It's new and people have adopted it because it suits their requirements. They either prefer the flexibility or the prepaid pricing or they're transient. There are millions of people like that. And they won't buy DSL, so they can't be offloaded. Live with it. Offloading strategies seem to have chosen to focus on a group of people who have opted very recently to use a mobile broadband connection at home, rather than DSL/WiFi. In so doing they've assumed that all that traffic is ready and raring to be offloaded. It isn't.

Now then...what happens when we put these two problems together? A solution. Or more accurately a set of solutions. There are a small number of subscribers who probably won't be "offloaded", concentrated in a small number of cells whose usage peaks at a particular time. You deal with that with a combination of small cells for boosting capacity in areas with very high usage (and that's fairly predictable since 90% of MBB usage is within the home postcode), traffic compression (see Onavo blogpost) and subscriber management (i.e. making sure that those fellas who are using all the bandwidth are actually paying their fair share).

I've focused here on private WiFi and consumer/domestic usage. I certainly think there's a place for public WiFi, although to be honest I don't see a wild amount of difference between that and small cells. They achieve the same objective and the end user isn't paying for the backhaul, which is one of the main benefits to the MNOs of femto/offloading. There's also definitely space for enterprise Femto. But enterprise users aren't the ones creating the so-called traffic tsunami.

I'll be dealing with all these sorts of issues in forthcoming reports. The next imminent release is Mobile Broadband Global Forecast & Analysis 2010-20, which will be available later this month. It will include detailed forecasts of 54 countries and 6 regions (including connections, traffic and revenue across datacards/USB modems, smartphones and tablets).

Friday, 8 July 2011

I was at the Mobile Entertainment Forum awards last night. A great bash honouring some truly innovative apps. Congratulations to the OnStar mobile application that won in the Technology Innovation category that I was judging. A great app. Also congrats to ForgetMeNot Africa with a great SMS-based app allowing access to loads of social networks and messaging apps.

Another winner that really grabbed my attention was from Onavo. It's an iPhone app (with Android version coming soon) that reduces the network load from other iPhone applications. My discussion with them comes on the back of a few days spent at the Managing Mobile Data conference in Vienna where operators were talking about traffic load and in some cases complaining about how there's no incentive for app developers to be network-friendly. They're not incentivised to keep utilisation of network resources to a minimum. Onavo helps make network-unfriendly applications friendlier. And the benefit is not just to the network operator. For end-users it reduces their total data usage, which they'll obviously be happy about. So for those MNOs struggling to cope with large volumes of data from iPhones (and for one MNO at the conference iPhones account for 1/3 of all mobile data) perhaps look at this before spending big on spectrum and LTE BTSs.

I need to write up more on the Managing Mobile Data conference and will do when I have a little more time. A very interesting couple of days. In the meantime, check out Onavo.

Thursday, 7 July 2011

The big M2M news this morning is that TeliaSonera has joined the cooperation agreement that was kicked off earlier this year between FT Orange and DTAG. Link to the announcement here.

The first (and not wildly insightful) observation is that this substantially expands the geographical scope of this burgeoning M2M alliance. To the existing coverage of France, Belgium, Germany, Netherlands, Luxembourg and the UK can be added Sweden, Norway, Finland, Denmark, Estonia and Lithuania. DTAG and Orange have presence in a bunch of other markets too (including Spain, Poland and elsewhere in southern and central Europe), which could be added to the mix at a later date. That said, there seems to be a policy of avoiding including any markets where there is geographical overlap. FT/Orange and DTAG in Poland or Slovakia for instance. It's interesting to note that Spain was excluded from the initial agreement. Perhaps they were already planning for a deal with TeliaSonera which is present in Spain. Anyway, footprint overlap shenanigans aside, this is all so far, so helping-compete-with-the-geographical-scale-of-Vodafone.

More important than the geographical scope is what the alliance is for. As we saw in the past with multi-operator alliances, they're of absolutely no value and geographical coverage doesn't matter at all if they don't really DO anything. Think of Freemove for instance. Did it achieve anything? Not really. It's interesting to note that if you throw TIM into this new troika you basically have an M2M version of Freemove. In fact, given that the only major European country that the newly expanded alliance doesn't cover is Italy...watch this space.

So, what should this alliance's objectives be? How can it better allow its members to take advantage of the M2M opportunity? Well, let's start with what they've stated the objectives to be. Basically it's to facilitate multilateral roaming deals, provide better out-of-footprint service guarantees and introduce some economies of scale through joint testing and certification. Sounds pretty reasonable. Let's run through some of those issues.

Roaming rates are an issue today for M2M. Having in-country presence is critical for high bandwidth applications such as In-Vehicle Infotainment (IVI). Paying EUR1 per MB is just not sustainable. Admittedly most M2M applications are relatively light so roaming charges are manageable. However, even with these, having to pay standard roaming fees bumps up the cost relative to an in-country operator. And many non-facilities-based players are struggling to compete with facilities-based today, even with light applications. A function of the increasing interest in M2M and consequent decreasing costs. So either you need to be in-country or have a favourable roaming rate with a national partner.

Many third party device/application providers want to do multinational deals for connectivity. Amazon for the Kindle for instance, or Nissan for the Leaf electric car. They'd rather do that than signing separate deals in each country, particularly as there is likely to be a high degree of roaming with many of these devices anyway. They want regional deals. Being able to point to lower roaming rates, courtesy of international partnerships, should help the likes of DTAG, Orange and TeliaSonera secure more of these. It also potentially gives them access to better rates than the wholesale deals that third party service providers might negotiate with MNOs, allowing them to compete better with MVNO-style M2M providers. I suspect they won't though, simply because MNOs don't have the bandwidth to deal with thousands of small customers across multiple niches. They'll focus on the tier-1 blue chip clients (such as eOn, Amazon or Nissan) and leave the haulage companies and clinical equipment manufacturers to the sector-specific SPs.

It is, of course, a mistake to think of M2M as a thing in itself. It is a convenient term for the application of connectivity to devices across different vertical sectors. As one would expect, the benefits of a multilateral roaming deal vary massively by sector.

Utilities don't care about cross-border issues. Everything's national so dealing with a single MNO is the order of the day and they certainly don't give a tuppenny toss whether their MNO partner has international partnerships or not.

Transport & Logistics is nominally one of the most sensitive to cross-border interworking issues. A consistent service environment and high availability/reliability are critical. However services here will tend to be managed through a specialist third party service provider such as KORE Telematics, rather than directly by the MNO. Those guys handle QoS, troubleshooting, international roaming and international interoperability. MNO arrangements don't really mean a lot, although I guess it could make the SP's life easier. They also tend to be light applications with high value add, so roaming rates are less important.

Healthcare rather depends on the type of healthcare you're talking about. If it's consumer worried-well applications like heart rate monitors etc. then best-in-class service is hardly an issue. Best effort works fine. For mHealth in the clinical environment then will be substantial benefit to adding robustness to any application since it's life critical. However it is a very small piece of the market. See our Machine-to-Machine (M2M) Communications in Healthcare 2010-20 report for more details.

Connected Home. Again, no desperate need for high reliability and availability to picture frames and washing machines. Best effort is fine. Also the vast majority of connected home devices are going to be using WiFi anyway.

For Automotive, as noted above, there's a lot of roaming and OEMs want to do regional deals. So having this kind of arrangement will help, particularly as there is a requirement for high reliability, particularly for security, tracking, eCall and vehicle diagnostics applications. Also for infotainment, the amount of data being downloaded will make current EUR/MB rates unpalatably expensive for the end user or service provider (depending who pays). Some kind of multi-national discounted rate is vital.

Consumer electronics. Again there could be a reasonable amount of roaming here, for instance with eReaders. It all rather depends whether you count that as M2M or not. For the sake of argument, let's include it. Having a single partner who can do better roaming deals is clearly in the interests of someone like Amazon for Kindle. Again, as with many of these sectors, QoS is a bit less of an issue.

So, it's automotive where we expect this alliance to really make the most difference. There are applications that demand high availability, there's lots of roaming, the clients (auto OEMs) want to do pan-European deals and there are high bandwidth applications that won't be acceptable at current roaming rates.

The other element of the arrangement relates to joint testing and module certification. Sensible stuff. Certified modules centrally for use across all operators' footprints. It keeps costs down and there are some benefits to interoperability.

We at Machina Research publish reports on all of these vertical sectors including healthcare, utilities and automotive and the impact of M2M. Drop me a line if you'd like to know more.

Friday, 1 July 2011

I'm prepping for the Managing Mobile Data conference in Vienna next week and was updating a few slides on mobile data tariffs and in particular pricing in the US set me thinking.

With the introduction of LTE, MNOs had a way of differentiating higher speed services with premium pricing. Makes sense doesn't it? For a commoditised service such as mobile broadband, any differentiation factor is useful. Size of bundle is one popular way to do it, e.g. charging more for 10GB than 5GB. Yes, great, but for a lot of subscribers bundle size is almost irrelevant. Business users generate much less traffic than consumers (approximately 1/3 in Norway for instance) so larger bundles don't really bother them. What they want is more speed. And they'd be prepared to pay for it. They're pretty price insensitive as a sector. Extra $5/month for higher speed? Sure. In Finland, which has the world's highest MBB penetration, MNOs long ago worked out that speed-based segmentation and premium subscriber prioritisation was the way forward. Things are a little different in the US.

Here are the tariffs for AT&T and Verizon...

What's wrong with this picture? Yep, neither of them charge a premium for LTE. Verizon doesn't distinguish at all. AT&T charges less...yes LESS...for LTE compared to its 3G plan. OK, so we all know it has an unwritten policy of trying to push subscribers off 3G onto 4G (see also their deal with Option for LTE devices) but still. It's a missed opportunity. They do get bonus points for having variable pricing depending on device. However, in a market where most MNOs took a very public decision to abandon unlimited plans you would have thought that there eye would be firmly on how they can segment subscribers. Apparently not though. Our recent research indicates that MNOs basically need to revamp their MBB tariffs every 12 months to reflect changing usage patterns. Hopefully when that happens both of them will have a rethink.

I hope you're joining us for the Managing Mobile Data conference where we'll be talking more about this. If not, watch this space for details of forthcoming mobile broadband reports from Machina Research.